The finance ministry has decided to allow the administrator of UTI-I to borrow from banks to meet the redemption pressure on the Unit Scheme-64 and assured returns schemes.

The move will help M Damodaran, the administrator, obtain cash at quick notice on demand from the public.

The Budget for 2003-04 provided Rs 6,500 crore (Rs 65 billion) to meet requirements in this regard. Of this, Rs 3,000 crore (Rs 30 billion) is in cash and the rest in the form of bonds.

But realisation from the Consolidated Fund of India takes time because of accounting requirements.

The finance ministry thus deemed it necessary to permit Damodaran to obtain funds for short-term needs.

The authority was also necessary because government entities like UTI-I cannot access funds from outside the treasury.

The ministry official added that no limit had been set to such borrowings, which would not be restricted to redemption pressure on account of ISFUS-98, due tomorrow. UTI-I also expects heavy redemption in September and October.

The power also comes with guarantees to lenders that the Centre will back any loans raised by the erstwhile mutual fund from the market.

This will also ensure that UTI-I does not have to distress-sell shares in top-notch companies to meet cash requirements, expected to top Rs 500 crore (Rs 5 billion) this month.

The Centre's support was necessary because the institution would have had to offer a sizeable collateral in the form of pledging its shares with banks.

This happened in the case of SUS-99, for which the Centre allowed a one-time exemption last week.